TVS MOTORS COMPANY LIMITED

EQUITY RESEARCH REPORT

Security Analysis and Portfolio Management
Submitted By:
Anjali Naidu (09207)
Anupam Chaplot (09210)
Kunal Damodar Madkaikar (09233)
Purush Prabhu (09231)
Satish Kumar (09246)

2010-2011
Table of Contents
STOCK INFO ................................................................................................................................................... 3
STOCK HOLDING PATTERN ............................................................................................................................ 3
EIC FRAMEWORK .......................................................................................................................................... 3
Economy analysis ...................................................................................................................................... 3
Industry Analysis ....................................................................................................................................... 4
Company Analysis ..................................................................................................................................... 4
Beta and cost of equity Calculation .............................................................................................................. 5
Market return and Risk Free Return: ........................................................................................................ 6
Interest and TAX rate .................................................................................................................................... 6
Credit rating of company .......................................................................................................................... 6
Tax rate ..................................................................................................................................................... 6
WACC ............................................................................................................................................................ 6
Capex (last few years) ................................................................................................................................... 6
FORECAST...................................................................................................................................................... 7
Sale Forecast ............................................................................................................................................. 7
Expense Forecast ...................................................................................................................................... 8
Working Capital Forecast .......................................................................................................................... 8
Gross Investment Forecast ....................................................................................................................... 9
Free cash flow / NPV CALCULATIONS ........................................................................................................... 9

Equity Research Report (TVS MOTOR COMPANY LIMITED) Page 2

STOCK INFO

STOCK INFO
SECTOR Automobile
MARKET CAP (Rs. Cr) 3170
BETA
52 Week HIGH/LOW 140/45
Avg. Daily Volume 505,512
Face Value 1
BSE Sensex 18113
Nifty 5442
Reuters Code TVSM.BO
Bloomberg Code TVSL@IN

STOCK HOLDING PATTERN

STOCK HOLDING PATTERN

PROMOTERS 60.5
MF/ BANKS/ INDIAN Fis 17.7
FII/ NRIs / OCBs 6
Indian Public / Others 15.8

EIC FRAMEWORK:
Economy analysis:

India, an emerging economy, has witnessed unprecedented levels of economic expansion,

along with countries like China, Russia, Mexico and Brazil. According to the estimates
by the Ministry of Statistics and Programme Implementation, the Indian economy has
registered a growth of 7.4 per cent in 2009-10, with 8.6 per cent year-on-year (y-o-y)
growth in its fourth quarter. Due to the strong position of liquidity in the market, large
corporations now have access to capital in the corporate credit markets.

Equity Research Report (TVS MOTOR COMPANY LIMITED) Page 3

Industry Analysis:

Company Analysis:
Company description
TVS Motors is the 3rd largest motorcycle and 2nd largest scooters manufacturer in India. It is also the
largest mopeds manufacturer in the country with a share in excess of 90%. It has recently forayed into
the 3-wheelers market in India and bebeks in Indonesia to diversify its product & geographical risk.

Equity Research Report (TVS MOTOR COMPANY LIMITED) Page 4

 Industry % sales TVS % sales
2006 7569573 11.89% 1342203 13.89%
2007 8469345 -4.75% 1528665 -15.69%
2008 8067182 4.65% 1288861 3.17%
2009 8441966 1329741

Beta and cost of equity Calculation:

cost of
Company Beta Rm Rf rm-rf equity
TVS 1.260154 18.22 5.8 12.42 21.45111257
hero Honda 0.569216 18.22 5.8 12.42 12.86966592

Equity Research Report (TVS MOTOR COMPANY LIMITED) Page 5

 kinetic motors 1.036132 18.22 5.8 12.42 18.66876089
LML LTD 1.148207 18.22 5.8 12.42 20.06072755
Majestic auto 0.849408 18.22 5.8 12.42 16.34964816
Maharashtra scooters 1.258627 18.22 5.8 12.42 21.43214507
scooter india ltd 0.99039 18.22 5.8 12.42 18.10064693

Market return and Risk Free Return:

avg market return 18.22%

risk free rate 5.80%

Interest and TAX rate

Credit rating of company

• A+ by care in 2010
• A by Crisil

Hence the cost of debt will be around, 8.35%+2.26%=10.61%

Tax rate
Effective tax rate: 12.03%

Statutory tax rate: 33.66%

(All the calculation are done by using Statutory tax rate)

WACC
total debt 905.98
total equity 810.16
interest rate 7.13%
cost of equity 21.45%
tax rate 33.66%
WACC 13.84%

Capex (last few years)

Rs. Crore
Project Project Completion
Project Name Status Cost Industry Date
Two
Baddi Two Wheeler Project Completed 120 wheelers 20070430

Equity Research Report (TVS MOTOR COMPANY LIMITED) Page 6

 Hosur 100Cc Motorcycle & Expansion Two
Project Completed 40 wheelers 20031231
Two
Motorcycle Project Completed 130 wheelers 19991222
Announceme Two
Nalagarh Plant Expansion Project nt N.A. wheelers 0
Scooter Project Completed 180 Scooters 19990131
Three
Three Wheeler Project Completed 100 wheelers 20080331
Two
Two Wheeler Project Completed 150 wheelers 20041231
Two
Victor Mobike Project Completed 70 wheelers 20020331

The Estimated Project cost of Nalagarh Plant is Rs. 1.2 billion.

FORECAST
Sale Forecast
Growth rate of Motorcycle, Mopeds, Scooters and Three Wheelers are calculated as per the forecast
done by Crisil given above and Management forecast considering the Market share will remain
constant.

Equity Research Report (TVS MOTOR COMPANY LIMITED) Page 7

 SALE FORECAST (in Cr.)
growth
Sales: 2009 2010E 2011E 2012E 2013E 2014E rate(assumptions)
Motorcycles 1,899.7 2,089.7 2,298.7 2,528.5 2,781.4 3,059.5 10%
Mopeds 707.3 778.1 855.9 941.5 1,035.6 1,139.2 10%
Scooters 664.8 764.5 879.2 1,011.1 1,162.8 1,337.2 15%
Spares and accessories 363.9 382.1 401.2 421.3 442.4 464.5 5%
Three Wheelers 35.1 36.9 38.7 40.7 42.7 44.8 5%
Net sales 3,670.9 4,051.3 4,473.7 4,943.0 5,464.8 6,045.2
Other income 67.4 70.8 74.4 78.1 82.0 86.1 5%
Total Revenue 3,738.4 4,122.1 4,548.1 5,021.1 5,546.8 6,131.2

Expense Forecast
Variable cost is changing as per the percentage change in sales and fixed cost are changing as per
inflation rate

2009 2010E 2011E 2012E 2013E 2014E % of sales

Raw Material consumed variable 2,783.39 3,069.11 3,386.25 3,738.46 4,129.84 4,565.00 0.74
Staff cost fixed 204.52 214.75 225.48 236.76 248.60 261.03
Stores and tools consumed fixed 30.70 32.24 33.85 35.54 37.32 39.18
Power and fuel variable 46.25 51.00 56.27 62.12 68.62 75.85 0.01
Repairs and maintenance gross block 34.09 35.79 37.58 39.46 41.44 43.51 0.02
Packing and freight charges variable 116.82 128.81 142.12 156.90 173.33 191.60 0.03
Advertisement and
publicity variable 91.82 101.25 111.71 123.33 136.24 150.59 0.02
Other expenses variable 244.60 269.71 297.58 328.53 362.92 401.17 0.07
Interest & Finance charges
(net) * NA 55.01 57.76 60.65 63.68 66.86 70.21 0.05
Depreciation net block 102.88 101.89 101.48 101.62 102.27 103.42 0.10
Total Expenditure 3,552.19 3,902.65 4,290.84 4,721.10 5,198.31 5,727.93

Working Capital Forecast

2008 2009 2010E 2011E 2012E 2013E 2014E Forecast crieteria
CAGR of last
Inventory turnover 9.6 13.3 12.4 11.5 10.6 9.9 9.2 -7.204% 4 years
Average collection period 10.0 12.0 12.6 13.2 13.9 14.6 15.3 5%

3 Current assets, loans 2008 2009 2010E 2011E 2012E 2013E 2014E

Equity Research Report (TVS MOTOR COMPANY LIMITED) Page 8

and advances
Inventory
(a) Inventories 405.4 320.6 297.5 276.0 256.1 237.7 220.6 turnover
avg
collection
(b) Sundry debtors 87.9 181.6 190.6 200.2 210.2 220.7 231.7 period
(c) Cash and bank percentage
balances 3.7 42.1 46.4 51.2 56.5 62.4 69.0 0.0112 of sales
percentage
(d) Other current assets 0.3 – 0.0 0.0 0.0 0.0 0.0 2.42E-06 of sales
percentage
(e) Loans and advances 277.5 349.5 385.4 425.2 469.4 518.6 573.2 0.0934 of sales
Total (A) 774.8 893.7 919.9 952.6 992.2 1039.4 1094.5
Current liabilities and
provisions
percentage
(a) Current liabilities 505.8 550.3 606.8 669.5 739.2 816.6 902.6 0.147 of sales
percentage
(b) Provisions 61.0 65.5 72.2 79.7 88.0 97.2 107.4 0.0175 of sales
Total (B) 566.8 615.8 679.0 749.2 827.1 913.7 1010.0
Net current assets (A) - (B) 208.0 277.8 240.8 203.4 165.1 125.6 84.5
change in working capital 69.8 -37.0 -37.4 -38.3 -39.5 -41.2

Gross Investment Forecast

growth
rate(assu
2009 2010E 2011E 2012E 2013E 2014E mptions)
Gross Block 1,790.97 1,865.36 1,958.63 2,056.56 2,159.39 2,267.36 2,380.72
Acc. Depreciation 869.00 971.88 1,073.77 1,175.25 1,276.86 1,379.14
Net Block 996.36 986.75 982.79 984.14 990.49 1,001.59
Capex 74.39 93.27 97.93 102.83 107.97 113.37
change is working capital 69.80 -37.03 -37.45 -38.26 -39.48 -41.15 0.0187
Gross Investment 144.19 56.24 60.48 64.57 68.49 72.22

Free cash flow / NPV CALCULATIONS

projection
TVS MOTORS 2009 2010E 2011E 2012E 2013E 2014E base
net sales 3670.92 4051.30 4473.71 4943.04 5464.80 6045.17
other operating income 67.44 70.81 74.35 78.07 81.97 86.07

Equity Research Report (TVS MOTOR COMPANY LIMITED) Page 9

total operating income 3738.36 4122.11 4548.06 5021.11 5546.77 6131.24
total operating expenses 3552.19 3902.65 4290.84 4721.10 5198.31 5727.93
Net operating Income 186.17 219.46 257.22 300.01 348.47 403.31
Depreciation 102.88 101.89 101.48 101.62 102.27 103.42
EBIT 83.29 117.57 155.74 198.39 246.19 299.89
Interest 55.01 57.76 60.65 63.68 66.86 70.21
EBT 28.28 59.81 95.09 134.71 179.33 229.68
Tax 9.52 20.13 32.01 45.34 60.36 77.31 33.66%
NOPAT 18.76 39.68 63.08 89.37 118.97 152.37
Depreciation 102.88 101.89 101.48 101.62 102.27 103.42
Gross Cash flow 121.64 141.57 164.56 190.99 221.24 255.79
Gross Investment 144.19 56.24 60.48 64.57 68.49 72.22
Free cash flow from
operations -22.55 85.33 104.08 126.41 152.75 183.58
Non Operating Cash flow 2.23 2.34 2.46 2.58 2.71 2.85 0.05
Free Cash flow -20.32 87.67 106.54 128.99 155.46 186.42
Terminal value 2915.39 0.07
WACC 13.84% 0.068

Enterprise Value 2315.739609

23157396 97.48694
no. of shares 237543557 094 676
market price of share 138.7

The price that comes from the above calculation is 97.48 which is less as compared to 138.7. That
means that the share is overvalued, this may be because taking 33.66% as the tax rate instead of
taking effective tax rate.

Equity Research Report (TVS MOTOR COMPANY LIMITED) Page 10